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News Review: Residential Buy-to-Let


Buy-to-let must not rest on its laurels by


Bob Young, managing director, CHL Mortgages


Te tail end of the summer can traditionally be some- thing of a quiet period for the mortgage market but the buy-to-let sector hasn’t shown much sign of slowing up this time round. First came the encouraging news that buy- to-let lending increased by 5% in the second quarter accord- ing to the Council of Mort- gage Lenders, with a stock uptick and improved arrears figures supplementing the feel-good factor. Tere is no chance of anyone getting car- ried away, with volumes still a fraction of where they were in 2007, but progress has most certainly been made since the sector’s nadir in 2009.


Younger landlords Hot on the heels of this boost were two separate stories that caught my eye and proved that both the profile and the portfolio of typical landlords are continuing to evolve. Te first was a piece in the Finan- cial Times which suggested the number of landlords in their twenties has increased since the global financial cri- sis, suggesting young inves- tors are turning their back on the stockmarket and in- stead placing their faith in the private rental sector. To the outsider this may seem like a brave move given how far the market has fallen since its peak but with first-time buy- ers continuing to struggle, there is still healthy demand for rented property. Many of


this new breed of property investor aren’t just using it to boost their income in the here and now either, with many earmarking any proceeds generated for their retirement given the uncertainty sur- rounding pensions.


Expanding In regards to portfolios, not only are a substantial pro- portion of existing landlords looking to expand their op- erations as we head towards the end of the year, but it is also the types of properties they are considering which makes for interesting reading. Te stock shortage blighting both the purchase and prop- erty investment markets in the UK at present is no secret


“It is important investors remain conscientious and don’t attempt to take advantage of tenants”


and it has forced landlords to look beyond what would usu- ally be considered a typical let such as a two bedroom flat. Recent


research from Para-


gon shows that not only have acquisitions of maisonettes, terraced and detached houses risen to their highest level this year, but the number of land- lords looking at bungalows, multi-unit blocks and houses in multiple occupation is also on the rise. Although this is due in part to an increasing number of individuals feeling excluded from the purchase market, it also shows a will- ingness on behalf of property


12 MORTGAGE INTRODUCER OCTOBER 2012


certainly on the government to alleviate the stresses on first-time buyers and renters by reinvigorating the level of housing starts, there is also a certain responsibility on buy-to-let landlords to help address the shortfall through bringing new properties to market.


investors to think outside the box when it comes to expand- ing their portfolios.


Rising rents Te stock supply shortage is certainly an issue that needs addressing at a governmen- tal level; while it continues it will continue to drive rents up. Residential


rents have


risen by 13.6% over the past two and a half years accord- ing to global information firm IPD and Rightmove’s lat- est sentiment gauge revealed that three fiſths of tenants expect their rent to rise in the coming year, suggesting a continuation of this trend. Despite this, tenancy dura- tions are at a record high (so say ARLA) of 20 months, so landlords don’t have to worry much about rental voids and are unlikely to be unduly con- cerned by them for as long as demand continues to outstrip supply. While the confluence of all


these factors could justifiably allow property investors to believe they are sitting pretty at present, it is important they remain conscientious and don’t attempt to take advan- tage of tenants by increasing rents beyond acceptable lev- els or placing unfair demands on existing or potential ten- ants. Indeed, while the onus is


Final quarter As we barrel towards the fi- nal quarter of the year, sector stakeholders will be hoping the buy-to-let market can continue its renaissance and one development that can safeguard this recovery is con- tinued competition. While the government’s Funding for Lending injection has enabled banks to breathe a little easier, it is not immediately apparent whether


the intended ben-


eficiaries of the scheme will be able to access the reduced rates that were hoped. Aſter an initial flurry of improved offerings – including a smat- tering of buy-to-let deals – things have gone somewhat quiet. Tis may be due to lenders increasing their own capital buffers first before they share the wealth but hopefully we will see a shiſt into the next phase soon. Such progress would un-


doubtedly be aided by regu- lators easing capital con- straints on banks but there is precious little chance of this happening in the future. Un- til then lenders will have to rely on their own means and innovation to drive the mar- ket forward but it is vital they do this and don’t simply rely on landlord and tenant demand remaining strong to help the buy-to-let market along.


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